Brazil: BCB to signal easing ahead – Rabobank

Rabobank analysts are expecting that the Copom is likely to hold the Selic rate at the historical low of 6.50%.

Key Quotes

“Despite the increasing chances for (what we would view as "insurance") rate cuts later this year – after some clarity on approval of an effective pension reform – we believe this is still too soon for the BCB to signal easing ahead.”

“Despite some modest recent improvement in the balance of risks for inflation, we believe the baseline scenario still warrants (keeping) a neutral approach.”

“Although local financial conditions improved since the last meeting, there is still a high degree of uncertainty in both global and domestic themes.”

“In terms of policy guidance, we see the Copom reiterating an expansionary monetary policy stance currently (i.e. interest rate seen below neutral), with activity weakness still associated with structural headwinds and recent shocks. No commitment to the next steps is expected.”

“Looking a bit further out, we are leaning towards a scenario where the BCB opts to cut rate (in “fast-act” mode) sometime in 19Q4, after a pension reform approval at Lower House. Our scenario – which until now had been projecting stable policy rate at 6.50% by mid-2021 – is currently under revision.”